Feds Seek to Block Release of Fannie Mae and Freddie Mac Memos

Invoking an emergency procedure Wednesday evening, the Justice Department appealed a judge’s order that would force the government to turn over at least 56 documents that might shed light on why mortgage finance giants Fannie Mae and Freddie Mac were effectively nationalized in August 2012.

The department argues that Court of Federal Claims judge Margaret Sweeney’s 80-page order on September 20, rejecting the government’s claims of executive privilege over those documents, engaged in “cursory” and “uncritical, rote analysis,” and rested “on a misunderstanding of the principles that govern the privileges.”

The action comes in a set of consolidated lawsuits filed by shareholders of the two Fortune 50 companies who say that the 2012 event—in which the Treasury Department and Federal Housing Finance Agency (FHFA) dramatically altered the terms of the two firms’ federal bailouts, all but wiping out the value of their stock—amounted to a “taking” of property without just compensation in violation of the Fifth Amendment to the U.S. Constitution. (The bailout began in early September 2008, on the eve of the financial crisis, when FHFA, with Treasury’s approval, placed the two government sponsored enterprises into conservatorship.)

Because Judge Sweeney’s order is not subject to ordinary appeal, the government is taking the issue to the appellate court—the U.S. Court of Appeals for the Federal Circuit—by means of a procedural mechanism known as “mandamus.” Mandamus is considered an extraordinary remedy reserved for instances in which a judge has committed clear error or an abuse of discretion that will have severe, irreversible consequences. The device has sometimes been used successfully in the past to challenge orders rejecting privilege claims.

“We firmly believe that Judge Sweeney correctly rejected the government’s claims of privilege,” says Charles Cooper, the lead attorney for plaintiff Fairholme Funds, in an interview, “and we will strenuously oppose the government’s petition for mandamus.” Fairholme, a group of mutual funds founded by activist investor Bruce Berkowitz, has led the charge to wrest the documents into the open.

By merely bringing the mandamus petition, however, the government has already made it more challenging for Fairholme’s attorneys to achieve one of their objectives. Ideally, they would like to get their hands on the documents in time to show them to a different federal appeals court—the U.S. Court of Appeals for the D.C. Circuit—before the latter issues a ruling in a related set of cases challenging the same 2012 event.

The D.C. Circuit is now reviewing the September 2014 decision of U.S. District Judge Royce Lamberth in Washington, D.C., who threw out a number of investor suits challenging the 2012 change in bailout terms on a different legal theory: namely, that Treasury and FHFA exceeded their federal statutory powers when they did so. The investors in the cases before Lamberth were not entitled to discovery, but Fairholme’s attorneys have been bringing to the D.C. Circuit’s attention documents Fairholme has already successfully harvested through the discovery process before Judge Sweeney, and they had hoped to show that court these 56 documents, too.

Because the D.C. Circuit heard oral arguments on Judge Lamberth’s ruling in April, it could render a decision any day.

In the mandamus petition filed Wednesday, the government contends that the 56 documents at issue before Judge Sweeney—which were generated at the Treasury Department, the Federal Housing Finance Agency, or the White House—are protected by at least three evidentiary privileges designed to ensure that federal executive officials can have frank and open discussions of important policy issues: the “deliberative process privilege,” the “bank examiners privilege,” and—weightiest of all—”presidential privilege.”

The government claimed presidential privilege for four of the 56 documents, which are memos or emails that contain input from President Barack Obama’s then National Economic Council director Gene Sperling, deputy director Brian Deese, and senior advisor James Parrott. Sperling is currently acting as an economic advisor to Democratic presidential candidate Hillary Clinton.

Although Judge Sweeney’s order specifically concerns 56 documents, which she reviewed in her chambers, they were selected by plaintiffs lawyers from among some 12,000 documents for which the government had asserted privileges. Based on how the documents were described in the government’s “privilege log”—a list a litigant is required to draw up when it is refuses to produce a document on the basis of a privilege—the investors’ lawyers chose those specific 56 as representative of all 12,000. (Presumably, they chose the ones that looked the juiciest, too.)

The expectation was that the court’s resolution of the fate of the 56 documents would shed light on how the government should handle the remaining thousands. Since Judge Sweeney found none of the first 56 to be protected, the implication was that few, if any, of the rest would be protected.

Which is certainly how the Justice Department also appears to have understood Sweeney’s order. “Intervention by this court is required,” the department urged in its mandamus petition, “to avoid the en masse negation of crucial government privileges.”

Notwithstanding the filing of its petition yesterday, the government will still need to obtain a stay of Sweeney’s order—either from Sweeney herself or from the Federal Circuit—in order to keep from having to turn over the 56 documents to the plaintiffs’ lawyers in the meantime.

Fairholme and other investors are likely to oppose such a stay, arguing that the protective order Judge Sweeney already has in place—generally preventing lawyers in the case from showing any documents they receive through discovery to the public or even to their own clients—will prevent any harm to the government pending resolution of its appeal of the privilege ruling. (Almost all of the documents the investors’ attorneys have shown the D.C. Circuit so far, for instance, have remained under seal, unavailable to the public and, indeed, to the investors’ themselves.)

The cases before Sweeney and Lamberth all arise from the following facts. In September 2008, with residential mortgage defaults skyrocketing, FHFA’s director placed Fannie and Freddie into conservatorship.

Over the next four years the GSEs received, under the terms of special bailout legislation, $189.5 billion in taxpayer money. In exchange, they issued special “senior preferred stock” to the Treasury under which they had an obligation to pay 10% interest on the bailout money they’d received. In 2012, the GSEs began to make money again, together posting a healthy $8 billion in profits for the second quarter.

But in August 2012, a few days after those profits were posted, Treasury and FHFA suddenly changed the terms of the GSEs’ special preferred stock. They replaced the 10% interest obligation with a requirement that the GSEs instead pay Treasury their entire profit each quarter in perpetuity (except for a small capital reserve that would gradually dwindle to nothing by 2018). Due to this new regime—known as the Net Worth Sweep—it now appeared that the GSEs would never emerge from conservatorship, and would, rather, be eventually wound down and replaced with some other system of housing finance to be set up by Congress.

Government officials have claimed that they took this action because they feared the GSEs would start losing money again, with taxpayers still being on the hook. In the months immediately following the momentous switch, however, the GSEs actually booked record profits. As of last November, by which time thousands of Fannie and Freddie investors—led by Fairholme and hedge fund Perry Capital—had filed numerous suits in numerous courts, the GSEs had paid the government about $240 billion in exchange for the $189.5 billion bailout, or nearly $130 billion more than they would have paid under the original 10% coupon agreements.

Lawyers for the investor plaintiffs have speculated that the Treasury and FHFA officials responsible actually knew that the GSEs were healthy in 2012 (and possibly even in 2008) but confiscated their assets for opportunistic budgetary reasons, including, perhaps, the desire to postpone hitting the national debt ceiling at a time when Congress was threatening to shut down the government. They have sought disclosure of Treasury, FHFA, and White House documents in order to try to prove this theory.

U.S. Angered as Freddie Mac Auditor Settles Investor Suit

It looks like some clever Freddie Mac shareholders may have actually got some of their money back, in compensation for the government’s effective nationalization of the mortgage finance giant in August 2012, which wiped out virtually all the value of their stock.

The money—or whatever the investors got in a confidential lawsuit settlement that was first announced to the judge on October 11 and then apparently completed by October 18, when the parties agreed to dismiss the case—didn’t come from the government itself, but rather from Freddie’s auditor from 2008 to 2013, PricewaterhouseCoopers, which was the sole defendant in the suit.

Nevertheless, Uncle Sam is mad about the deal. The government is trying to find out exactly what its terms were—and possibly to undo it. The Federal Housing Finance Agency, which has been Freddie Mac’s conservator since 2008, has asked a Miami federal judge to reopen the case in order to dismiss it again, but this time “without payment of any kind,” as it papers explain.

The odd dispute arose in one of the satellite lawsuits stemming from the government’s confiscation, in essence, of both Fannie Maefnma and Freddie Macfmcc in 2012, when it dramatically changed the terms of a federal bailout of the two government-sponsored enterprises (GSEs), which began in 2008. (Fannie Mae is the popular name for the Federal National Mortgage Association and Freddie Mac refers to the Federal Home Loan Mortgage Corporation.)

U.S. District Judge Federico Moreno of Miami has scheduled a hearing Monday morning to decide what to do. The plaintiffs—23 individual investors plus investment managers Gator Capital, of Tampa, and Perini Capital, of Miami—are arguing that the judge no longer has jurisdiction, because the parties agreed to dismiss the case last Tuesday.

The shareholders sued PwC in March, claiming, in effect, that it helped federal regulators both to seize Freddie Mac in 2008 and to nationalize it is 2012—when it first became clear that the government had no intention of ever letting the GSEs pay back their debts and reemerge as independent companies—by portraying it as being in worse financial shape than it really was.

Specifically, the suit alleges that PwC “assisted government regulators and officers of Freddie Mac to destroy the value of Freddie Mac stock” by “manipulating the books . . . to overstate losses and understate its assets by hundreds of billions of dollars.” The suit alleges that these acts amounted to “negligent misrepresentations” and “aiding and abetting” of fiduciary breaches by Freddie’s own directors and by the federal officials who took over from them in 2008. A PwC spokeswoman said she couldn’t comment on any aspect of the suit due to a confidentiality agreement reached as part of the settlement. (The suit never reached the stage where PwC filed an answer in court responding to the accusations. FHFA and Treasury have denied any wrongdoing in numerous other suits.)

A few days before the suit against PwC was filed last March, a nearly identical suit was filed by Gator, Perini, and about 30 individuals—including some of the same ones—against Fannie Mae’s auditors, Deloitte & Touche. No settlement has been reached in that case.

To understand the whole mess, we need to take a couple steps back. In September 2008, as the nation’s economic system descended into crisis, with defaults on residential mortgages skyrocketing, FHFA’s director placed Fannie and Freddie into conservatorship, with FHFA acting as conservator. The stated goal was to ensure stability in the national housing market.

Over the next four years the GSEs received, under the terms of special bailout legislation, $189.5 billion in taxpayer money. In exchange, they issued special “senior preferred stock” to the Treasury under which they had an obligation to pay 10% interest on the bailout money they’d received. In early 2012, the GSEs began to make money again, together posting a healthy $8 billion in profits for the second quarter.

But in August 2012, a few days after posting that profit, Treasury and FHFA suddenly changed the terms of the GSEs’ special preferred stock. They replaced the 10% interest obligation with a requirement that the GSEs instead pay Treasury their entire profit each quarter in perpetuity (except for a small capital reserve that would gradually dwindle to nothing by 2018). The GSEs would, therefore, never emerge from conservatorship, and would, rather, be wound down and replaced with some other system of housing finance to be set up by Congress.

Government officials have claimed that they took this action because they feared the GSEs would start losing money again, and that taxpayers would end up on the hook again. In the months immediately following the momentous switch, however, the GSEs actually booked record profits. As of last November, by which time thousands of Fannie and Freddie investors—led by hedge fund Perry Capital and the Fairholme Group of mutual funds—had filed numerous suits in numerous courts, the GSEs had paid the government about $240 billion in exchange for the $189.5 billion bailout, or nearly $130 billion more than they would have paid under the original 10% coupon agreements.

Though the investor suits have been based on a wide range of legal theories, they fall into two main categories: those alleging that the momentous 2012 revision in bailout terms was beyond federal officials’ statutory powers and those alleging that it was an unconstitutional “taking” of shareholder property without just compensation—i.e., a violation of the Fifth Amendment.

Lawyers for the investor plaintiffs have speculated that the Treasury and FHFA officials responsible actually knew that the GSEs were healthy in 2012 (and possibly even in 2008) but confiscated their assets for opportunistic budgetary reasons, including, perhaps, the desire to postpone hitting the national debt ceiling at a time when Congress was threatening to shut down the government.

The two Miami suits against each GSE’s accounting firm were filed in state court, but were swiftly transferred to federal court by each defendant.

There, FHFA moved to oust the plaintiffs in each suit and to substitute itself, citing the federal law that created FHFA in July 2008. Under that statute, FHFA, when acting as a conservator, “succeeds to . . . all rights, titles, and privileges . . . of any stockholder” of a seized GSE. Thus, FHFA argues, only FHFA is empowered to bring shareholder litigation relating to Freddie Mac at this point, and it has not chosen to do so.

Before Judge Moreno could rule on that motion, the parties settled. Judge Moreno then dismissed FHFA’s substitution request as moot (i.e., no longer relevant). But last Monday FHFA asked once again to be permitted to oust the plaintiffs and undo the settlement. It would then dismiss the suit without seeking “payment of any kind.”

FHFA has also asked Judge Moreno to force the parties to show it the settlement deal by Friday.

The FHFA declined comment on the suit. Attorneys for the plaintiffs did not return an email seeking comment.

In the broader litigation, investors have had mixed results so far. In September 2014, U.S. District Judge Royce Lamberth of Washington, D.C., dismissed one group of consolidated investor suits, finding that FHFA and Treasury had acted within their statutory authority. His ruling was argued before a federal appeals court last April, and the appellate decision could come down any day.

In the Court of Federal Claims—where most of the constitutional “takings” cases are being heard—plaintiffs appear to be faring better, so far, with Judge Margaret Sweeney last month granting their request to force the Treasury Department, FHFA, and the White House to turn over documents which the latter had been seeking to withhold, citing various evidentiary privilege doctrines.

SEC Settles Case With Former Fannie Mae Chief Exec

In one of the U.S. Securities and Exchange Commission’s biggest cases tied to the 2008 financial crisis, former Fannie Mae Chief Executive Daniel Mudd has reached a settlement with regulators, according to court papers filed on Monday.

The deal with the SEC, detailed in papers filed in Manhattan federal court, resolves a 2011 lawsuit accusing Mudd of misleading investors about Fannie’s exposure to risky mortgages before the crisis.

Mudd had denied wrongdoing and he did not admit any in the Monday agreement. The deal concludes one of the SEC’s few remaining cases tied to the housing downturn.

Mudd was one of six executives at mortgage funding giants Fannie Mae and Freddie Mac sued by the SEC. The prosecutions were announced at a press conference in December 2011, but they ended in modest settlements over the following years.

Under terms of the latest deal, Fannie Mae will contribute $100,000 on Mudd’s behalf to a Treasury Department account that receives financial gifts to the United States, according to documents.

Fannie’s former chief risk officer, Enrico Dallavecchia, and former Executive Vice President, Thomas Lund, agreed to similar terms when they settled for $25,000 and $10,000 respectively in September 2015.

A Fannie Mae spokesman declined to comment on the Mudd case. The SEC did not immediately respond to calls for comment.

Mudd had continued to litigate alone after Lund and Dallavecchia settled last year and he was due to face trial in November.

“I appreciate Fannie Mae and the current leadership of the SEC stepping in to end a case that should have never been brought,” Mudd told Reuters.

Crisis Tenure

Mudd led Fannie Mae as a national housing bubble grew to bursting point from December 2004 to September 2008, when the Treasury Department effectively took control of the company.

That same month, Lehman Brothers filed for bankruptcy as Wall Street was rattled by a wave of mortgage defaults.

Officials injected taxpayer money to stabilize Fannie and it’s sibling Freddie which were conceived by Washington to promote home ownership and had helped underwrite a share of the easy-to-get subprime loans.

The SEC had accused Mudd and the five other Fannie and Freddie executives of downplaying the companies’ exposure to risky loans.

The SEC said Fannie Mae concealed exposure to more than $100 billion of subprime and $341 billion of Alt-A loans—another class of mortgage offered to risky borrowers.

Former Freddie Mac chief Richard Syron as well as former executives Patricia Cook and Donald Bisenius previously settled their cases for $250,000, $50,000 and $10,000, respectively.

The case is U.S. Securities and Exchange Commission v. Mudd, U.S. District Court, Southern District of New York, No. 11-9202.

Fannie Mae Is a Whopping $36 Million Over Budget on its New Headquarters

It’s history is checkered with accounting scandals that helped inflate executive pay and instances where it lavished money on lobbyists to protect its unique status as a quasi-governmental organization that sent its profits to shareholders rather than the Treasury.

One would think that now that Fannie is under conservatorship by the federal government that its days of lavish spending were over, but an inspector general report released Thursday morning shows that the housing giant will overspend by $36 million on its new headquarters in Washington, D.C. Of course, if the government is taking all your profits anyway, executives may be more willing to spend their potential profits on office upgrades rather than giving it to Uncle Sam.

The report shows that the new headquarters, which it is leasing, will include seemingly unnecessary architectural features including glass encased bridges connecting separate parts of the building and a rooftop viewing deck. The report paints a picture of a lack of communication between Fannie and officials at FHFA, the organization tasked with overseeing Fannie and Freddie Mac, which allowed the cost overruns to go unchecked.

“To the best of our knowledge, FHFA has not approved any of the proposed features in Fannie Mae’s architectural and engineering plans nor has it reviewed or approved proposed expenditures by Fannie Mae for these features.” The report reads. “We do not know . . . the extent to which proposed features in Fannie Mae’s architectural and engineering plans can be altered.”

This is despite the fact that home values remain relatively strong, as evidenced by the Case-Shiller home price index.

With home prices reaching, or even surpassing, their pre-bubble peaks in many markets, weak home-sales numbers are likely not the result of weak demand. Indeed, the U.S. economy has created more than 13 million new jobs since the 2010, and more Americans are forming new households, pushing up the price of housing rents to all time highs.

So what’s wrong with homebuilders?

Economics 101 tells us that homebuilders should respond to higher prices by ramping up production, but as you can see from the chart below, they are moving very slowly:

There are profits to be made from building relatively affordable homes, but America’s homebuilders aren’t constructing them. This suggests there’s a serious supply problem in the American housing market. For years, homebuilders have complained that the cost of building homes is prohibitive due to a lack of labor and land.

Some economists have scoffed at these complaints. After all, with the labor force participation rate at 30-year lows and overall wages stagnant, there’s little evidence of a lack of willing workers, if only you’re willing to pay them enough. But as the home building industry continues to ramp up construction at a snail’s pace, the evidence speaks for itself. If there are profitable building opportunities out there in a competitive market, no capitalist worth his salt will pass it up just because he doesn’t want to give his workers a raise.

On top of that, even liberal economists like Jason Furman, President Obama’s Chairman of the Council of Economic Advisors, has argued that the housing market is being held back by supply constraints, pointing out in a recent speech that land use regulations are holding builders back from constructing homes that average Americans can afford.

It’s Also Really Tough to Get a Mortgage

The lack of new home construction isn’t the only thing holding back the housing market. After all, the fact that Americans are forming new households and paying record high rents shows that many can afford high monthly payments each month for housing. But for some reason, people aren’t willing or able to turn rent checks into equity-building mortgage payments.

According to Laurie Goodman, director of the Housing Finance Policy Center, the reason for this phenomenon is that financiers are simply unwilling to lend to even qualified borrowers:

As you can see from the chart above, the lowest 10th of borrowers typically had a FICO score of around 600 before the housing bubble, but the same cohort needs a score of 668 today. “The banks have pulled back from this market. They have all paid multi-million dollar fines, and are afraid of the reputational risk of making lower quality loans,” Goodman says.

After the financial crisis, government-owned Fannie Mae and Freddie Mac were very aggressive in forcing banks to buy back loans with faulty underwriting, even if the mistakes were minor. The Federal Housing Administration and the Fannie Mae and Freddie Macs conservator, the FHFA, have made changes to try to give lenders more certainty over what sort of loans they will keep on their books, but the reform effort is a work in progress.

Blame the Millennials

As with just about any problem in America today, there has been an effort to blame the problems in the housing market on Kids These Days. One common explanation for the weakness of the housing market is that older Millennials can’t afford to buy a home. These folks, who are in now in the prime, first-time buyer age range of one’s late twenties and early thirties, are waiting longer to buy a home than their parents’ generation had. Many analysts assume that high student loan debt has kept home sale figures low.

But recent research from Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin have shown this is not the case. They looked at data from the National Longitudinal Study of Youth’s 1997 cohort and tracked a group of young people through their young adulthood to pinpoint the effects of student debt on homeownership. They found that the average student loan debt—just $15,000—is not high enough to overwhelm the wage premium that college graduates receive or to dissuade banks from lending them enough money to buy a house.

More than there being a division between young and old, the real split in the housing market is between rich and poor. The financial crisis has not only made banks less willing to lend to people with low credit scores, it has also dealt lasting damage to many Americans’ credit and put many American homeowners underwater.

This dynamic, paired with stagnant wages for less wealthy Americans, has gummed up the works in the nation’s more affordable housing markets. Homeowners with cheaper homes are more likely to owe more on their mortgages than their homes, making it difficult for these people to trade up to more expensive homes, as is the case in normally functioning markets.

“America is experiencing a housing shortage. Not only are there fewer homes available to buyers of all income levels, those just starting out or making their first foray into home ownership are worse off than they’ve been in years,” writes Ralph McLaughlin, chief economist at online real estate firm Trulia. “There are fewer homes available, and even if they can find a home, it’s likely to be more expensive.”

All of these factors—supply constraints, tight credit, changing homebuying habits, and income inequality—have conspired to keep the American housing market weak and unable to lead the American economy to higher growth, as it has done in the wake of previous recessions. The height of the real estate credit binge was a decade ago, but it looks like we’ll be suffering from the hangover for many years to come.

How Uncle Sam Nationalized Two Fortune 50 Companies

Most stories about the financial crisis of 2008, the darkest chapter in American economic history since the Great Depression, come to an end by 2012. That’s when ours begins.

After the housing market bottomed out in 2011 and began its upward trajectory, the nightmare seemed to end. For business it was morning in America again. Most of the too-big-to-fail institutions had either paid back their federal bailout money or were on track to do so. Stocks climbed and stockholders rejoiced.

That was the basic story arc for such titans as J.P. Morgan Chase JPM and Wells Fargo WFC (recipients of $25 billion each in taxpayer largesse), for instance, and for Citigroup C and Bank of America BAC ($45 billion each), and even for the derivative-plagued insurance giant AIG AIG ($182 billion).

Shareholders of Fannie Mae FNMA and Freddie Mac FMCC, the housing-finance behemoths at ground zero of the crisis, thought it would be their story line too. Fannie and Freddie, shorthand for the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., are known as government-sponsored enterprises, or GSEs, because of their unique structure: federally chartered yet privately owned.

The government had injected $187.5 billion into the GSEs after placing them in conservatorship in September 2008. But both seemed to be recovering on schedule, ending the first quarter of 2012 in the black and posting a whopping combined $8 billion profit for the second.

Yet on Aug. 17, 2012—about 10 days after the terrific second-quarter results were announced—something singular happened. For reasons that remain shrouded in secrecy to this day, the Treasury Department and the companies’ conservator, the Federal Housing Finance Agency (FHFA)—two arms of the same government—agreed to radically change the terms of what the GSEs would owe in exchange for the moneys they had already received.

Instead of a 10% annual dividend on all the bailout funds drawn—a dividend that came to $4.7 billion per quarter—the dividend was now to be set at 100% of each GSE’s net worth. One hundred percent. That is to say, any and all profit they posted. And this would be so in perpetuity. For all practical purposes, the GSEs’ shareholders were wiped out. The two firms, on their way back to health, were effectively nationalized.

The sudden change was called the “third amendment,” an innocuous-sounding designation that belies its momentous consequences. Just how momentous became clear almost as soon as the third amendment took effect, in January 2013. For within months the GSEs began posting the highest profits in their history. And when they did, all those billions were spirited off to the Treasury.

To date, the third amendment has swept into government coffers $129 billion more than the original 10% dividends would have. As a result, the GSEs have now paid the Treasury about $240 billion in recompense for the $187.5 billion extended to them (or actually $189.5 billion, counting fees that were part of the original deal). While that’s not yet a complete “repayment” of principal and interest at 10%, it’s getting close.

Or, rather, would be getting close if any of those payments counted as redeeming even a penny of the $189.5 billion principal—but they don’t. They’re just dividends. The government left no mechanism for Fannie and Freddie to pay back the principal, which is never reduced. So if the GSEs are ever dissolved, the government will still take the first $189.5 billion recovered from liquidation, stepping ahead of the companies’ preferred shareholders, who would have otherwise collectively held at least $33 billion in liquidation rights.

If this strikes you as, well, un-American, you’re not alone.

“I just don’t think there’s any precedent for the government nationalizing two privately owned companies the way it has.”

“I just don’t think there’s any precedent for the government nationalizing two privately owned companies in the way that it has,” says Chuck Cooper, an attorney representing the Fairholme mutual fund family and a group of insurance companies that own millions of preferred shares of Fannie Mae and Freddie Mac.

So Fairholme is suing the government, as are several other funds, insurance companies, and tens of thousands of individuals in a dozen or so suits now pending in at least five federal courts across the country. The cases allege that the U.S. government illegally or unconstitutionally took, without just compensation, Fannie and Freddie—two Fortune 50 companies. (They rank 17 and 42, respectively, on the 2015 Fortune 500 list.) The money at stake here—$33 billion worth of preferred shares and almost $130 billion in diverted dividend payments—places these cases among the highest-valued lawsuits in history.

“A conservator has one constant accepted responsibility,” says Cooper, of Cooper & Kirk in Washington, D.C., who is handling two of the cases and advising on a third. “That is to rehabilitate the entity under conservatorship. Rehabilitate it. Not to hold it in perpetual captivity to harvest its profits for the benefit of the conservator itself. That’s the very antithesis of a conservator.”

The government’s alleged nationalization of two enormous corporations raises potentially landmark constitutional issues—comparable to President Harry Truman’s attempt to nationalize steel mills during the Korean War. Asked to cite an earlier dispute against the government with comparable stakes, Cooper can only come up with the gold-clause cases of the 1930s, when President Franklin Roosevelt and Congress, coping with the exigencies of the Great Depression, abrogated all contractual provisions that permitted redemption of debts in gold. (The Supreme Court largely upheld the action.)

Photograph by Larry Downing — Reuters

Yet the contest over the third amendment is not just a weighty legal dispute over a sacrosanct constitutional principle—though it is that. It’s also a battle royal being waged between fabulously wealthy, opportunistic fund managers and Uncle Sam. That battle, in turn, is spilling over into the political arena, recasting the debate over housing-finance reform—and, as we’ll see in a bit, driving a sharp wedge between factions of the conservative base.

The fund managers have become key because, for better or for worse, the third amendment is more than just a colossal legal misstep; it’s a colossal investment opportunity. It had the effect of slashing the GSEs’ stock valuations to nearly nothing. Judging the amendment to be legally dubious, investors spied an opportunity to vacuum up GSE securities cheap, strike down the amendment in court, and then make a huge profit when the stock rebounded.

So, like sharks to blood, speculators rushed in, complaining about an alleged taking that, in many cases, occurred before they even got there. Cooper’s client Fairholme, founded by Bruce Berkowitz, began buying in May 2013, amassing about 120 million shares of Fannie and Freddie preferred—with a par value of $3.4 billion—for roughly $700 million. Bill Ackman’s Pershing Square Capital Management hedge fund bought up 10% of both GSEs’ common shares in late 2013. Billionaires Carl Icahn and John Paulson are among other marquee hedgies with skin in the game.

The activist fund managers are now trying to drive the policymaking debate in the direction of recapitalizing and restoring Fannie and Freddie to something like their prior positions—“recap and release,” they call it—which would, not incidentally, maximize the value of their shares. Their arguments—voiced on CNBC, Bloomberg TV, Charlie Rose, op-ed pages, and elsewhere—are plausible, but their conflicts are breathtaking. Under a recap and release scenario, Ackman’s projections show, his stake in Fannie and Freddie common stock—acquired for about $400 million—could in five years top $8 billion in value.

A host of public interest groups have also sprung up to support recap and release. While many of these are doubtless independent of the fund managers—Ralph Nader leads one—the opaque disclosure rules relating to nonprofits make it impossible to tell. According to the Wall Street Journal, one conservative seniors group, called 60 Plus, came up with $1.6 million in the spring of 2014 to mount a TV ad campaign to defeat senators supporting a bipartisan reform bill that would have dismantled Fannie and Freddie, terming it “Obamacare for the mortgage industry.”

Finally, the third amendment is having one additional weird, unintended impact on the political environment: It’s splitting the conservative camp, which had once seemed solidly bent on driving a stake through Fannie’s and Freddie’s hearts at whatever cost. Cooper himself is emblematic of the anomaly. He’s a well-known Republican who has frequently pursued conservative legal causes, from defending bans on same-sex marriage to protecting gun rights. (Senator Ted Cruz, the Texas Republican now running for President, was once an associate in Cooper’s office.)

He’s also a good friend of Peter Wallison, perhaps the single harshest GSE critic in the nation and the one who has most tirelessly championed the view that Fannie and Freddie were the primary causes of the financial crisis of 2008, not mere enablers of more culpable private-sector banks. During the Reagan Administration, Cooper headed the Justice Department’s Office of Legal Counsel—acting, as he puts it, as Reagan’s chief constitutional lawyer—while Wallison served as Treasury and, later, White House counsel.

But while many conservatives still want Fannie and Freddie put to sleep as quickly as possible—the Wall Street Journal editorial board, for instance, has consistently denigrated the third-amendment litigation as frivolous—the front is no longer united. It seems that if there’s anything a dyed-in-the-wool conservative hates more than a GSE, it’s a government taking of a GSE.

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The stakes of the housing-finance policy debate are even greater than those of the lawsuits. Historically, Fannie and Freddie have played a central role in promoting homeownership in this country, the traditional gateway to the middle class. They have promoted liquidity and affordability in the mortgage market by buying mortgages, bundling them into securities, and selling them around the globe with an implicit (now explicit) government guarantee. They have been widely credited with having made possible the 30-year fixed, prepayable mortgage—the foundation of the American mortgage market and a rarity beyond our borders.

The Obama Administration has supported ambitious but complex bipartisan bills, known as Johnson-Crapo and Corker-Warner, that are intended to fix what many saw as inherent failings in the GSEs’ hybrid structure—one that privatized gains but socialized losses. The bills would, their sponsors claim, end the GSEs’ “duopoly” over the secondary-mortgage market and replace their implicit government guarantees with more limited, explicit ones. But the bills have stalled.

Seven years into their conservatorship, the GSEs remain adrift, with shrinking capital reserves and no exit plan—a dormant, festering crisis.

As a policy matter, Bethany McLean, a former Fortune writer whose recent book, Shaky Ground, sounds the alarm over Fannie and Freddie’s neglected plight, comes down on the side of the fund managers. “One of the investors gave me the analogy that Corker-Warner was like taking the existing highway structure in the U.S., tearing it up, and building a new one right next to it, with no guarantees that the new one was going to work,” she says.

The point is a good one. But what a strange way we’ve hit upon to make policy in our country. Fund managers identify an investment opportunity, then retroactively construct self-serving arguments for why the nation will be a better place if their bets are allowed to hit the jackpot.

With Congress locked in partisan stalemate, however, it may just be how the sausage gets made.

The government justification for the third amendment hinges on something it calls the “death spiral.” That’s the term U.S. officials have used in affidavits defending the litigation in court. (Justice Department lawyers and spokespeople for FHFA and the Treasury declined to comment for this article.) In a letter last April to Sen. Charles Grassley, an Iowa Republican, Randall DeValk, an official at Treasury, explained that the GSEs themselves projected that “for the foreseeable future, they would be unable to pay the 10% dividends without taking additional draws.” Those new draws would cause them to approach their funding caps, DeValk continued, triggering a new insolvency crisis.

But how could their projections have been so far off, given that Fannie and Freddie were actually about to post their largest profits ever? Those profits, after all, came from one-time accounting adjustments, which should have been foreseeable. By 2013 (and probably earlier than that) it had become obvious that many of the losses the GSEs had incurred during the crisis—the impetus for their having drawn so much money from Treasury in the first place—had been losses on paper only. They had resulted from accountants’ overly pessimistic projections, which, under GAAP, became eligible for reversal when the economic picture brightened. It was these reversals that enabled Fannie, for instance, to book $59 billion in profits for the first quarter of 2013.

William “Bill” Ackman, founder and chief executive officer of Pershing Square Capital Management LP, poses for a photograph following a Bloomberg Television interview in LondonPhotograph by Chris Ratcliffe — Bloomberg via Getty Images

FHFA didn’t know that—or so said an agency official in an affidavit submitted in late 2013 in a suit brought by hedge fund Perry Capital.

Cooper doesn’t believe FHFA’s claim. Documents and depositions from officials at Treasury and FHFA, obtained in discovery in a suit brought by Fairholme Funds, show that the government’s story is “highly misleading” in some respects and “outright false” in others, plaintiffs lawyers allege in court briefs.

Instead of a 10% dividend on the bailout funds drawn, the dividends would be set at 100%of each GSE’s entire net worth.

The lawyers can’t tell the media (or even their clients) specifically what the documents and depositions show, however. That’s because Court of Federal Claims Judge Margaret Sweeney has ordered those materials sealed from public view, at the government’s behest. Bewilderingly, the Justice Department has persuaded her that disclosure of that information—concerning a now three- to eight-year-old decision-making process of tremendous public interest—might cause “dire harm” and “place this nation’s financial markets in jeopardy.” But the lawyers have won Sweeney’s permission to send their discovery finds (still under seal) to all the judges handling related cases, which they’ve done.

In any case, the government also stresses that it’s fundamentally wrong to imagine that the GSEs are anywhere near “paying back” the bailout moneys—or that they ever will be. “Treasury did not make a simple ‘loan’ to Fannie and Freddie,” DeValk argued to Grassley. “It made available hundreds of billions of dollars of funding capacity to ensure market confidence in the continued stability of the enterprises at a time when that stability was very much in doubt … Treasury and the taxpayers continue to be on the hook for future losses those enterprises may incur. Any private lender would demand substantial compensation for providing that kind of ongoing funding commitment.”

In September 2014 the government won an early round in the litigation. U.S. District Court Judge Royce Lamberth, of Washington, D.C., threw out Perry Capital’s case and four others, concluding that the conservator had acted within the broad powers given to him by Congress; that the GSEs were so heavily regulated that their stock wasn’t the sort of property that was capable of being “taken” in constitutional terms; and that the conservatorship had already “extinguished” the plaintiffs’ property rights in any event.

The suit is now in the U.S. Court of Appeals for the District of Columbia. But with other cases still playing out in the federal court of claims and in federal district courts in Iowa and Kentucky, the litigation seems certain to last for years and destined to reach the Supreme Court.

In March 2008, when the plummeting housing market caused investment bank Bear Stearns to fail, James Lockhart, Fannie and Freddie’s chief regulator, was sending out broad signals of optimism. He eased certain regulatory burdens on the GSEs, enabling them to issue new shares to the public. “The actions we’re taking today,” Lockhart declared at the time, “make the idea of a bailout nonsense in my mind. The companies are safe and sound, and they will continue to be safe and sound.”

Two months later Fannie issued $7.4 billion in preferred stock. About $65,000 worth was purchased by Jim and Pandora Vreeland of Loudon, Tenn. Jim, then 61, had been an officer with the Montville (N.J.) Township Police Department before retirement. In 2008, when his mother died and left him a small inheritance, he went to his Wachovia broker seeking advice, he recounts.

It seems if there’s anything a dyed-in-the-wool conservative hates more than a GSE, it’s a government taking of a GSE.

“ ‘I’m looking for something to produce good interest, pretty assured,’ ” he recalls telling the broker. “ ‘Oh, what you want is preferred shares of Fannie Mae,’ ” he was told. (At that point Fannie hadn’t had an unprofitable year since 1985, and Freddie had never had one.)

Vreeland bought $40,000 worth, at about $25 per share. At the same time his wife, Pandora, acting as the trustee for her father, who had Alzheimer’s, bought $25,000 worth for his trust, banking on the income stream to pay for his nursing-home care.

It wasn’t just mom-and-pop investors who were buying Fannie preferred, even at this late stage. GSE securities had long been favored instruments for community banks and insurance companies. They were safe enough to satisfy regulators, explains Chris Cole, a spokesman for the Independent Community Bank Association, and were considered “a good way to diversify and to improve yield.”

In July 2008, as the economy continued to deteriorate, Treasury Secretary Hank Paulson asked Congress to give regulators beefed-up bailout powers for Fannie and Freddie. That same month Congress passed the Housing and Economic Recovery Act, creating the Federal Housing Finance Agency to oversee the GSEs. Lockhart, who was appointed to head the new agency, got the power to place Fannie and Freddie into either receivership or conservatorship. The roles differ substantially: Receivers liquidate troubled companies; conservators attempt to nurse them back to health and restore them to independence.

Two months later, the week before Lehman Brothers fell, Lockhart put both housing giants into conservatorship. As Lockhart explained that day in a press statement, that statutory process was “designed to stabilize a troubled institution with the objective of returning the entities to normal business operations.”

The following day, Sept. 7, 2008, FHFA and Treasury signed deals with the GSEs setting out the terms of the bailout. Each GSE would issue senior preferred stock to the Treasury, and each could then draw cash as needed to avoid insolvency. In exchange, each would owe a 10% dividend on the money drawn, payable quarterly. To further protect the taxpayer, Treasury also got warrants to buy 79.9% of each GSE’s common stock at a nominal price—$0.00001 per share. (The percentage was kept below 80%, it has been widely reported, to avoid having to move the GSEs’ $5 trillion in assets and liabilities onto the government budget, which would have noticeably increased the national debt.)

The shareholders’ lawyers would later argue that the warrants provision gave private shareholders further reason to believe that the government aimed to eventually recap and release the GSEs. It aligned the interests of private shareholders and taxpayers by giving both a stake in the reinvigorated GSEs. Indeed, if the GSEs returned to health, nobody would benefit more than Uncle Sam. All of this made the third amendment superfluous, if not downright bizarre. “If the government wanted a dividend larger than the 10%,” says Hamish Hume, a partner at Boies Schiller & Flexner and a lead lawyer for a class of preferred and common shareholders, “the original deal made it clear what the government should do: exercise its right to acquire 80% of the common.” Why steal the cow when you can get the milk for free?

During the conservatorship, the GSEs’ shares were allowed to keep trading. Stockholders retained “all rights in the stock’s financial worth,” according to an FHFA fact sheet, though other powers of stockholders were “suspended” and dividends were “eliminated.”

The trading price of the Vreelands’ preferred stock had begun falling in July, when Paulson asked for legislation. The first trading day after conservatorship, it tumbled further, from $14 a share to less than $3.50, and by December it was under a dollar. Fannie’s dividends—the whole point of the Vreelands’ investments—were cut off. Having bought just four months earlier, they received just one dividend before the seizure.

“It was a big loss to a small guy,” says Jim in an interview. “That was the money I was supposed to live on.”

Still, Jim held out hope. “I was led to believe the government would back this up,” he says. “It was a quasi-government agency.” If the companies started making money again, he says, he assumed “they’d come back and take care of the people that had invested in this thing.”

He wasn’t alone. “I read all the documents,” says Tim Pagliara, the CEO of CapWealth Advisors in Franklin, Tenn. “I felt like the government’s reaction was overblown,” he recounts, and that the companies would eventually get back on their feet. The GSEs’ preferred stocks—like nearly all bank stocks at the time—were then cheap, so he bought some for himself, he says, and put 276 of his clients into it as well. Eventually some super-sophisticated investors, like Perry Capital, began buying the stock too.

For a couple of years the GSEs booked huge losses. In December 2010, Pandora Vreeland gave up on her father’s Fannie preferred, selling it for 56¢ a share, salvaging $520 from a $24,874 investment. But her husband, Jim, held on to his.

In August, FHFA and Treasury lowered the boom, announcing the third amendment. Jim Vreeland’s shares dropped 55%, from $2.35 to $1.05, and a day later they were worth 86¢.

“I thought it was a typo,” Bruce Berkowitz, the founder and chief investment officer of the Fairholme mutual funds, told journalist McLean of the moment when he first read the third amendment. “This can’t be right,” he continued, as recounted in Shaky Ground. “It’s like I took 80% of your house in the financial crisis, because you couldn’t pay, and then you somehow crawled your way back, and instead of saying, ‘Wow, you made it!’ I say, ‘Now I’m going to take 100%.’ ”

Seeing a golden opportunity, Berkowitz started buying these dirt-cheap Fannie and Freddie preferred shares in May 2013. Other funds were gorging on them too, pushing up the value of the shares. (Thanks to these speculators, Vreeland was able to unload his shares in March 2014 for between $10.40 and $12.70 per share, recovering nearly $18,000 of his $40,000 principal. Of course, his dividends were lost forever.)

Berkowitz then retained Chuck Cooper to try to get the third amendment struck down. In July 2013, he filed two cases for Fairholme, one in federal district court in Washington, D.C., and one in the federal court of claims.

Cooper was the obvious go-to guy for this assignment. His 13-lawyer boutique, based in a stately New Hampshire Avenue townhouse near Dupont Circle, specializes in suing the government, including “takings” cases. (Takings cases are those predicated on the clause of the Fifth Amendment that reads: “nor shall private property be taken for public use, without just compensation.”)

Cooper, who speaks with a soft Alabama accent and sometimes whips himself into fervors worthy of a jury summation, cut his chops in this realm by winning United States v. Winstar before the U.S. Supreme Court in 1996. In that case, which arose from the savings-and-loan crisis of the 1980s, healthy thrift institutions had been induced to buy sickly ones with the lure of certain regulatory accounting breaks, only to see those benefits abolished by Congress a few years later.

The legal challenges in the Fannie and Freddie suits come in two main flavors. The true “takings” cases, claiming that Uncle Sam stole billions of dollars from shareholders, seek damages from the U.S. government. The other suits instead seek court orders invalidating the third amendment and reversing its effects. They argue, for instance, that FHFA acted beyond its powers under the Housing and Economic Recovery Act.

Although the takings concept seems to best capture the injustice the plaintiffs feel, those cases may be harder for many to win or be less lucrative. There’s some question about whether plaintiffs who bought shares after the third amendment was announced (like Fairholme and Pershing Square) even have the legal right to seek damages for a taking. Also, since GSE shares were already quite cheap by the time of the third amendment—Fannie common was just 30¢ on Aug. 16, 2012, and fell only 6¢ after it was announced—a court might value a taking stingily, even if persuaded that one occurred.

If the plaintiffs succeed in invalidating the third amendment as beyond FHFA’s statutory power, on the other hand, many of their lawyers hope to win an order that would force the Treasury to count the nearly $130 billion paid in excess of the 10% dividend as a paydown of bailout principal. That would enable the GSEs to begin to rebuild capital and resume normal business, which would ultimately restore value to their shares.

In Congress, the struggle over whether and how to replace the GSEs continues. In mid-October top Obama administration officials reiterated their opposition to recap and release, squelching rumors—spread by activist investors, they suggested—that they might be undergoing a change of heart.

In an interview, Sen. Bob Corker, the Tennessee Republican, insists that while he opposes returning Fannie and Freddie to independence as a policy matter, he has nothing against the GSE shareholders. “Those individuals have rights, and nothing we’ve done has had anything to do with interfering with those rights,” he claims. “They’ll have their day in court. At the same time, this is just a fact: These entities would not be generating one penny of income if the federal government wasn’t standing behind them.”

Journalist McLean doesn’t second-guess the government’s decision to put the GSEs into conservatorship in the first place. “I have a hard time arguing with things done in the fog of war,” she explains. “But morally, the third amendment was done in a calm and happy time. It was calculated. The reason that has been articulated for it does not make sense, and it’s pretty clearly not true. That’s incredibly unpleasant for anybody that cares about the abuse of government power.”

She’s right. And the law isn’t as legalistic as cynics sometimes think. Gut checks count.

The spectacle of a conservator wiping out shareholders just as the companies he’s supervising are about to have their best years in history simply doesn’t smell right. It’s hard to picture the Supreme Court letting it stand.

A version of this article appears in the December 1, 2015 issue of Fortune with the headline “Uncle Sam’s $130 Billion Money Grab.”

Fannie and Freddie won’t go away

Let’s face it: Fannie Mae and Freddie Mac are a national disgrace. There is no good reason why the nation with the most sophisticated financial markets on earth should maintain a government market for mortgages. Nor is there reason why the last country to resist socialized health care should embrace socialized home ownership.

But here we are and here we will stay. The White House, caught between a rock and a hard place, acknowledged yesterday that housing finance reform will not happen in the Obama administration.

To recap: During the 2008 crisis, the government put the failing Fannie and Freddie into conservatorship, and provided a $187 billion taxpayer bailout. Since then, Uncle Sam has gotten his money back, and more. In 2012, the government changed the rules of the deal to grab additional profits, and has taken in a total of $239 billion.

That has the vulture investors who picked up Fannie and Freddie stock at a bargain crying foul. As long the government takes all the profits, they have no chance of making good on their investments. They want the companies to be recapitalized and released to the market– recreating the insane system of private profit and public risk that existed before the crisis. Top White House adviser Michael Stegman said yesterday that shouldn’t and won’t happen – at least while Obama is president.

But a mortgage market run by the government is equally insane. Problem is, ending the existing mortgage finance system abruptly would pull the rug out from under a weak economy – and no one is willing to do that. So the government is punting. Problem unsolved.

There might be a way out of this fix. Two of the last reasonable men in Congress – Democrat Senator Mark Warner and Republican Senator Bob Corker – started working on a plan in 2013 to phase out Fannie and Freddie, replace them with private insurers, and provide government guarantees in return for an explicit fee. But like most reasonable efforts in Congress these days, that one foundered.

In an excellent new book that attempts to make sense of the senseless history of Fannie and Freddie, Shaky Ground, author Bethany McLean quotes ousted Fannie CEO Franklin Raines saying several years ago that the mortgage giants “will be around a lot longer than anyone thinks. Give it ten years or so, and maybe we’ll rename them Bob and Tom, instead of Fannie and Freddie, but there they will be.”

Looks like he was right.

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The penalty the U.S. government just levied on one of the highest ranking former officials of Fannie Mae wouldn’t even buy a used Volkswagen diesel Sportwagen.

On Monday afternoon, Thomas Lund settled charges brought by the Securities and Exchange Commission back in 2011 that he helped deceive shareholders of Fannie Mae in the run-up to the financial crisis. Fannie had to be rescued by the government in early September 2008, and many see the giant mortgage insurer’s misconduct as one of the main contributors to the meltdown. The suit claimed that Lund, who was the head of Fannie’s single-family division, helped hide more than $100 billion of subprime exposure from Fannie’s shareholders, allowing it to continue to back more and more risky loans.

Lund’s penalty for his role: a mere $10,000. What’s more, the penalty won’t even be considered a fine. The SEC agreed to classify the payment officially as a “gift to the U.S. government,” not an actual punishment. But the worst part is this: Lund won’t even pay the penalty. The agreement allows Fannie to make the payment for him, which it has agreed to do. And don’t forget: The government had to bail out Fannie and still controls it.

So in other words, the non-fine “gift to the U.S. government” that has been levied on the former head of Fannie’s single family division, which was the biggest source of the company’s problems, will actually be essentially paid by the government. How’s that for justice?

Andrew Lavender, Fannie’s former risk officer, also agreed to a $25,000 penalty as part of the settlement. But he won’t pay that either. The third and most high-profile Fannie executive who was also charged in the suit, former CEO Daniel Mudd, was not part of the settlement and is still fighting SEC fraud charges.

The SEC’s case against Lund and the others claimed Fannie only classified a small portion of the mortgages it made to lower-credit-score borrowers as subprime. In early 2007, the company reported that just 2% of its portfolio was tied to subprime mortgages. Fannie’s actual exposure, according to the government, was more like 22%.

But the government claimed that Fannie excluded from its definition of subprime as much as $100 billion worth of loans that were made to low-credit-score borrowers who should have been considered subprime, but because of Fannie’s purposefully narrow definitions, they did not.

The government went after Lund because he was in charge of Fannie’s single-family division, and he was the sole person from his unit who was in charge of disclosure. He also had to sign off on disclosures about the division that were made to Fannie investors, which the SEC claimed were misleading.

Lund’s lawyer said his client did nothing wrong, and the terms of the settlement prove that.

Still, Josh Rosner, who was early in spotting the housing market problems that resulted in the financial crisis and later co-wrote a book on the financial crisis called Reckless Endangerment, said he isn’t too upset about the settlement. Rosner, who has long followed Fannie Mae, says the fact that there wasn’t a clear definition of what subprime mortgages were was a problem. Also he thinks banks played a much bigger role than Fannie in the spread of the reckless mortgage lending that led to the financial crisis.

Still, the SEC has been trying to fight criticism that it let financial executives who were responsible for the crisis off the hook. These latest Fannie settlements won’t help, however. “This case is more PR spin and baloney rather than real enforcement that will have any affect on the conduct of people in the financial markets,” says Dennis Kelleher, who heads Better Markets, a non-profit that supports more reform of Wall Street.

The Fortune 500’s biggest stock market losers

Just because a company succeeded in making the Fortune 500 does not mean it rewarded its shareholders—in fact, every year, at least a handful of corporations fail miserably in the stock returns department. While the average Fortune 500 stock returned 14.2% in 2014 (the year on which the new list is based), a handful of companies lost more than a third of their market value throughout the year—and some lost more than half.

Falling energy and commodities prices were a common theme among the worst-performing stocks on this year’s list. Still, this year’s companies didn’t do quite as poorly as the ones on the previous edition. The previous worst performer, NII Holdings, lost more than 61% in 2013. (NII fell off the Fortune 500 this year.)

Of course, stock performance does not factor at all in a company’s Fortune 500 ranking, which lists the largest U.S. companies in terms of their revenues. It does, however, help to determine a company’s market value. To see this year’s list ranked by that metric, go to our new, sortable Fortune 500 database and filter by “Mkt Value.”

Want to see which Fortune 500 stocks lost the most money last year? Read on for our list of biggest loser stocks—in order from worst to just really bad.

The Fortune 500’s fastest-growing companies

To be in the Fortune 500, a company must have recorded at least $5.19 billion in sales last year. But how fast did they get there? The speed at which Fortune 500 companies grow their sales (or shrink them) determines whether they scurry up the ranks, sink like a stone, or perhaps just stay put.

In 2014, the median revenue growth of a Fortune 500 company was 4.3%. Still, a single year only tells you so much; more impressive are the rocket-ship companies that can boost their sales year after year. To that end, we screened the Fortune 500 to find the companies that had the greatest revenue growth over the past five years, and they are an impressive bunch: To make the cut, they had to average more than 30% annual sales growth for five years straight.

One surprise in this contest? AppleAAPL didn’t win. Read on to see which companies did. (You can also use our all-new digital Fortune 500 list to rank this year’s companies by 2014 revenue growth; to do so, click here and sort by “Rev Change.”